ESG is an investment approach that considers the environmental, social and governance impact of investment decisions. Approaches that factor in ESG can range from screening out companies involved in specific restricted business activities to a more rigorous approach where investors incorporate ESG data as an integral component of their investment analysis, allocation, risk measurement, security selection, and performance attribution process.
Several factors have played a role in the increasing use of ESG criteria in global investment policies and processes, ranging from increased availability of data to a fundamental shift in the way investors think about responsible investing.
The Barclays MSCI ESG Fixed-Income Indices family contains the first fixed-income benchmark indices based primarily on ESG factors, according to the firms. They comprise more than 500 standard and bespoke indices representing the most widely used ESG strategies and investment objectives across three categories:
- Barclays MSCI Socially Responsible (SRI) Indices exclude issuers that engage in particular businesses activities that may be restricted for certain investors and are intended for those whose investment selections are governed by values-based policies.
- Barclays MSCI Sustainability Indices apply a best-in-class methodology to select issuers (sovereign, corporate, and quasi-sovereign) with high ESG ratings relative to their peers. These indices are intended for investors who place a premium on companies’ sustainability strategies and believe ESG criteria can be applied to identify companies that are more effective in managing the ESG risks unique to their industry.
- Barclays MSCI Weighted Indices use ESG ratings to systematically over- and under-weight issuers within a bond index using an objective rules-based approach. These indices are targeted toward universal owners whose investment strategies express a view on the financial impact that ESG factors will have on their investments.
The indices fill a gap in the market by providing asset owners and managers with ESG commitments, such as UN PRI (United Nations Principles for Responsible Investing) signatories, with a series of performance benchmarks.
Institutional investors can leverage the indices to create index-linked investment products, such as exchange-traded funds (ETFs), separately managed accounts, and structured products, based on ESG investment themes.Jill Cornfield